Shaktikanta Das Expected to Maintain Status Quo in RBI MPC Meet, but the Tone Holds the Thrilling Twist

RBI Governor Shaktikanta Das is likely to continue his firm stance on inflation in the upcoming MPC meeting, dampening hopes of rate cuts on the horizon. High inflation continues to be a prominent issue, prompting the central bank’s focus on effective liquidity management. However, there’s a growing realization that the current inflation surge is primarily supply-driven rather than demand-led, limiting the impact of interest rate hikes on curbing it.

In previous policy reviews, some policymakers have already highlighted this point, emphasizing the need for the government to address supply bottlenecks and boost production. As we await today’s policy review, the question remains whether this caution will be reiterated.

Private and public sector banks are unlikely to make significant changes to their lending and deposit rates in the near future, given recent rate revisions. A hawkish policy statement is highly anticipated today, as inflation remains the central concern. Over the past two months, the Consumer Price Index (CPI) inflation has exceeded the upper threshold of 6%, raising concerns among those battling inflation.

The MPC also faces the challenge of navigating the global economic landscape, particularly the signals from the US Federal Reserve, which is adopting a ‘higher-for-longer’ interest rate policy. In simple terms, it suggests that interest rates in India are likely to remain stable for some time. However, the RBI is expected to communicate its abundant caution regarding the inflation risks clearly.

Key highlights expected from the RBI MPC meeting:

• Repo rate expected to be retained at 6.5%
• Focus on withdrawing the accommodative policy stance to align with inflation targets
• GDP projection for FY24 to remain at 6.5%
• Revised inflation forecast at 5.4%
• Enhanced transaction limits for small-value digital payments to ₹500 from ₹200 in UPI Lite
• Measures to absorb surplus liquidity in the banking system

The 10-year benchmark 7.18% 2033 bond yield is projected to fluctuate within the 7.19%-7.23% range until the MPC decision, ending at 7.2140% in the previous session. There is a possibility of a revision in RBI’s GDP growth projections, which have remained unchanged in the last two policy reviews.

Since the last policy review, global crude oil prices have averaged around $89 per barrel, surpassing the $85 per barrel estimated by the RBI. It briefly exceeded $97 per barrel in September before stabilizing at around $90 per barrel this month. Governor Das has emphasized the importance of liquidity management in the money markets, prompting the RBI to take actions addressing both frictional and durable liquidity challenges.”